Learning Intention: Students will be able to understand the Capital Asset Pricing Model (CAPM) and its application in finance.

Introduction: Begin the lesson by asking students if they have ever heard of the Capital Asset Pricing Model (CAPM). Explain that CAPM is a financial model used to determine the expected return on an investment based on the risk-free rate, market risk premium, and the asset’s beta.

Body: 1. Define CAPM: Explain that CAPM is a financial model that helps investors determine the expected return on an investment based on the risk-free rate, market risk premium, and the asset’s beta.

1. Components of CAPM: Break down the three components of CAPM: - Risk-free rate: The rate of return on a risk-free investment, such as a government bond. - Market risk premium: The additional return an investor expects to receive for taking on the risk of investing in the stock market. - Beta: A measure of an asset’s volatility compared to the overall market.

2. Formula for CAPM: Show students the formula for CAPM: Expected Return = Risk-free rate + Beta x (Market risk premium)

3. Application of CAPM: Provide examples of how CAPM can be used in finance, such as: - Evaluating the expected return on a stock or portfolio of stocks - Determining the appropriate discount rate for a project or investment - Comparing the expected return of different investments

Conclusion: Summarize the key points of the lesson and ask students if they have any questions or if there is anything they would like to add. Encourage students to research and explore CAPM further on their own.